HSBC Holdings Regulatory News (HSBA)

5 Mar 2007 08:25

HSBC Holdings PLC05 March 2007 Current, savings and other deposit accounts Figures in HK$m At 31Dec06 At 31Dec05 Current, savings and other deposit accounts:- as stated in consolidated balance sheet 482,821 430,995- structured deposits reported as trading liabilities 35,066 24,422 517,887 455,417By type:- demand and current accounts 29,594 27,248- savings accounts 223,255 188,839- time and other deposits 265,038 239,330 517,887 455,417 Certificates of deposit and other debt securities in issue Figures in HK$m At 31Dec06 At 31Dec05 Certificates of deposit and other debt securities in issue:- as stated in consolidated balance sheet 7,595 10,023- structured certificates of deposit and other debt securities in issue reported as trading liabilities 14,821 13,616 22,416 23,639By type:- certificates of deposit in issue 18,075 22,525- other debt securities in issue 4,341 1,114 22,416 23,639 Customer deposits and certificates of deposit and other debt securities in issuerose by 12.8 per cent to HK$540.3 billion. Both HK dollar and US dollar savingsaccounts rose, reflecting customers' preference for liquidity in an activeinvestment market. Structured deposits, structured certificates of deposit andother debt securities in issue rose 31.2 per cent as the bank continued toincrease the diversity and sophistication of these products for customers tocapture market opportunities. Deposits at mainland branches grew 51.1 per cent following efforts to increasethe customer base through expansion of the network and the PFS sales force. Tofurther develop the wealth management business, the mainland branches expanded the range of investment-linked deposit products to meet the needs of the PrestigeBanking customer segment. Trading liabilities Figures in HK$m At 31Dec06 At 31Dec05 Structured certificates of deposit and other debt securities in issue 14,821 13,616Structured deposits 35,066 24,422Short positions in securities and other 10,206 7,766 60,093 45,804 Trading liabilities include customer deposits and certificates of deposit withembedded options or other derivatives, the market risk of which was managed inthe trading book. Other liabilities Figures in HK$m At 31Dec06 At 31Dec05 Items in the course of transmission to other banks 6,469 6,517Accruals 2,641 1,653Acceptances and endorsements 2,855 2,371Other 4,158 3,597 16,123 14,138 Subordinated liabilities Figures in HK$m At 31Dec06 At 31Dec05 Nominal value Description Amount owed to third parties HK$1,500 million Callable floating rate subordinated notes due June 2015 1,496 1,495 HK$1,000 million 4.125 per cent callable fixed rate subordinated notes due June 2015 987 967 US$450 million Callable floating rate subordinated notes due July 2016 3,483 _ Amount owed to HSBC Group undertakings US$260 million Callable floating rate subordinated loan debt due December 2015 2,021 2,016 7,987 4,478 Representing:- measured at amortised cost 7,000 3,511- designated at fair value 987 967 7,987 4,478 During the year, the bank issued floating-rate subordinated notes amounting toUS$450 million that mature in July 2016 with a one-time call option exercisableby the bank in July 2011. The notes were issued at the price of 99.869 per cent,bearing interest at the rate of three-month US dollar LIBOR plus 0.30 per cent,payable quarterly from the issue date to the call option date. Thereafter, ifthe notes are not redeemed on the call option date, the interest rate will bereset to three-month US dollar LIBOR plus 0.80 per cent payable quarterly. Thenotes, which qualify as tier 2 capital, serve to help the bank maintain a morebalanced capital structure and support business growth. Shareholders' funds Figures in HK$m At 31Dec06 At 31Dec05 Share capital 9,559 9,559Retained profits 29,044 26,052Premises revaluation reserve 3,491 3,543Cash flow hedges reserve (220) (483)Available-for-sale investments reserve 923 (17)Capital redemption reserve 99 99Other reserves 452 185Total reserves 33,789 29,379 43,348 38,938Proposed dividends 3,633 3,633Shareholders' funds 46,981 42,571 Return on average shareholders' funds 27.4% 27.5% Shareholders' funds (excluding proposed dividends) increased by HK$4,410million, or 11.3 per cent, to HK$43,348 million at 31 December 2006. Retainedprofits rose by HK$2,992 million, reflecting the growth in attributable profitand the realisation of property revaluation reserves on the disposal ofproperties during the year. The available-for-sale investments reserve alsorose. The return on average shareholders' funds was 27.4 per cent, compared with 27.5per cent in 2005. Save for the US$450 million subordinated notes issue, there was no purchase,sale or redemption of the group's listed securities by the bank or any of itssubsidiaries during 2006. Capital resources management Analysis of capital base and risk-weighted assets Figures in HK$m At 31Dec06 At 31Dec05 Capital baseTier 1 capital- Share capital 9,559 9,559- Retained profits 25,724 21,439- Classified as regulatory reserve (518) (510)- Capital redemption reserve 99 99- Less: goodwill (330) (318)- Total 34,534 30,269Tier 2 capital- Property revaluation reserve 4,259 5,114- Available-for-sale investment and equity revaluation reserve 542 (5)- Collective impairment allowances 518 510- Regulatory reserve 518 510- Term subordinated debt 7,988 4,479- Total 13,825 10,608Unconsolidated investments and other deductions (4,242) (3,444)Total capital base after deductions 44,117 37,433 Risk-weighted assetsOn-balance sheet 308,127 277,617Off-balance sheet 15,251 14,739Total risk-weighted assets 323,378 292,356Total risk-weighted assets adjusted for market risk 324,007 291,570 Capital adequacy ratiosAfter adjusting for market risk- Tier 1^ 10.7% 10.4%- Total^ 13.6% 12.8% Before adjusting for market risk- Tier 1 10.7% 10.4%- Total 13.6% 12.8% ^ The capital ratios take into account market risks in accordance with therelevant HKMA guideline in the Supervisory Policy Manual. In accordance with the HKMA guideline, Impact of the New Hong Kong AccountingStandards on Authorised Institutions' Capital Base and Regulatory Reporting, thegroup has earmarked a 'regulatory reserve' from retained profits. Thisregulatory reserve is included as tier 2 capital together with the group'scollective impairment allowances. The total capital ratio rose by 0.8 percentage points to 13.6 per cent at 31December 2006, compared with 12.8 per cent at 31 December 2005. The tier 1 ratioincreased from 10.4 per cent to 10.7 per cent. The capital base increased byHK$6,684 million to HK$44,117 million, mainly due to the increase in retainedprofits (including the realisation of property revaluation reserves on disposedproperties) and the issue of US$450 million subordinated notes, which qualify astier 2 capital. Risk-weighted assets adjusted for market risk grew by 11.1 percent, attributable to the increase in advances to customers and financialinvestments. Liquidity ratio The average liquidity ratio for the year, calculated in accordance with theFourth Schedule of the Hong Kong Banking Ordinance, is as follows: 2006 2005 The bank and its major banking subsidiaries 51.9% 45.1% Reconciliation of cash flow statement (a) Reconciliation of operating profit to net cash flow from operating activities 2006 2005Figures in HK$m (restated) Operating profit 12,576 11,068Net interest income (11,694) (10,796)Dividend income (47) (60) Loan impairment charges and other credit risk provisions 264 618Depreciation 323 280Amortisation of intangible assets 10 9Amortisation of available-for-sale investments (532) 12Amortisation of held-to-maturity debt securities 2 _Advances written off net of recoveries (336) (575)Interest received 22,232 14,262Interest paid (16,693) (8,399)Operating profit before changes in working capital 6,105 6,419Change in treasury bills and certificates of deposit with original maturity more than three months 5,077 8,113Change in placings with and advances to banks maturing after one month (9,035) 2,534Change in trading assets 4,252 3,983Change in financial assets designated at fair value (56) 1,060Change in derivative financial instruments (433) (395)Change in advances to customers (18,589) (8,857)Change in other assets (6,427) (11,929)Change in financial liabilities designated at fair value 20 _Change in current, savings and other deposit accounts 51,826 (9,189)Change in deposits from banks 5,637 110Change in trading liabilities 14,289 29,263Change in certificates of deposit and other debt securities in issue (2,428) (2,589)Change in other liabilities 8,458 9,423Elimination of exchange differences and other non-cash items (3,707) 315Cash generated from operating activities 54,989 28,261Taxation paid (1,448) (1,421)Net cash inflow from operating activities 53,541 26,840 (b) Analysis of the balances of cash and cash equivalents Figures in HK$m At 31Dec06 At 31Dec05 Cash and balances with banks and other financial institutions 9,390 9,201Placings with and advances to banks and other financial institutions maturing within one month 74,072 53,294Treasury bills 5,158 3,018Certificates of deposit 1,655 _ 90,275 65,513 Contingent liabilities, commitments and derivatives Credit Risk- Contract equivalent weightedFigures in HK$m amount amount amount At 31Dec06 Contingent liabilities:Guarantees 4,150 3,877 3,679 Commitments:Documentary credits and short-term trade-related transactions 8,717 1,745 1,738Undrawn formal standby facilities, credit lines and other commitments to lend:- under one year 142,463 _ _- one year and over 18,719 9,360 8,696Other 193 193 193 170,092 11,298 10,627 Exchange rate contracts:Spot and forward foreign exchange 267,822 2,715 591Other exchange rate contracts 64,377 499 110 332,199 3,214 701 Interest rate contracts:Interest rate swaps 162,969 1,376 295Other interest rate contracts 2,350 2 _ 165,319 1,378 295 Other derivative contracts 5,668 382 90 Credit Risk- Contract equivalent weightedFigures in HK$m amount amount amount At 31Dec05 Contingent liabilities:Guarantees 4,133 3,907 3,131 Commitments:Documentary credits and short-term trade-related transactions 7,402 1,480 1,480Undrawn formal standby facilities, credit lines and and other commitments to lend:- under one year 109,369 _ _- one year and over 20,385 10,193 9,158Other 220 220 220 137,376 11,893 10,858 Exchange rate contracts:Spot and forward foreign exchange 188,088 1,426 333Other exchange rate contracts 15,176 193 48 203,264 1,619 381 Interest rate contracts:Interest rate swaps 161,083 1,472 308Other interest rate contracts 4,255 20 4 165,338 1,492 312 Other derivative contracts 1,194 86 17 The tables above give the nominal contract, credit equivalent and risk-weightedamounts of off-balance sheet transactions. The credit equivalent amounts arecalculated for the purposes of deriving the risk-weighted amounts. These areassessed in accordance with the Third Schedule of the Hong Kong BankingOrdinance ('the Third Schedule') on capital adequacy and depend on the status ofthe counterparty and the maturity characteristics. The risk weights used rangefrom 0 per cent to 100 per cent for contingent liabilities and commitments, andfrom 0 per cent to 50 per cent for exchange rate, interest rate and otherderivative contracts. In accordance with the Third Schedule, contingent liabilities and commitmentsare credit-related instruments that include acceptances and endorsements,letters of credit, guarantees and commitments to extend credit. The riskinvolved is essentially the same as the credit risk involved in extending loanfacilities to customers. These transactions are, therefore, subject to the samecredit origination, portfolio maintenance and collateral requirements as forcustomers applying for loans. As the facilities may expire without being drawnupon, the total of the contract amounts is not representative of futureliquidity requirements. In accordance with HKAS 39, acceptances and endorsements are recognised on thebalance sheet in 'Other assets' and 'Other liabilities'. These acceptances andendorsements are included in the capital adequacy calculation as contingenciesin accordance with the Third Schedule. Derivative financial instruments arise from futures, forward, swap and optiontransactions undertaken in the foreign exchange, interest rate and equitymarkets. The contract amounts of these instruments indicate the volume oftransactions outstanding at the balance sheet date and do not represent amountsat risk. The credit equivalent amount of these instruments is measured as thesum of positive marked-to-market values and the potential future credit exposurein accordance with the Third Schedule. Derivative financial instruments are held for trading or designated as eitherfair value hedge or cash flow hedges. The following table shows the nominalcontract amounts and marked-to-market value of assets and liabilities by classof derivatives. At 31Dec06 At 31Dec05Figures in HK$m Trading Hedging Trading Hedging Contract amounts:Interest rate contracts 105,001 60,318 102,233 63,105Exchange rate contracts 332,199 _ 203,264 _Other derivative contracts 5,668 _ 1,194 _ 442,868 60,318 306,691 63,105 Derivative assets:Interest rate contracts 435 513 481 454Exchange rate contracts 866 _ 776 _Other derivative contracts 73 _ 4 _ 1,374 513 1,261 454 Derivative liabilities:Interest rate contracts 573 217 998 457Exchange rate contracts 722 _ 310 _Other derivative contracts 19 _ 27 _ 1,314 217 1,335 457 The above derivative assets and liabilities, being the positive or negativemarked-to-market value of the respective derivative contracts, represent grossreplacement costs, as none of these contracts are subject to any bilateralnetting arrangements. This information is provided by RNS The company news service from the London Stock Exchange